Wednesday, January 04, 2006

Banking in China and India

IASC has posted a richly detailed analysis of banking in China and India by William Gamble which is well worth a read. Gamble compares the China Construction Bank with India's ICICI, both loci of recent foreign investment. His central message is that the political survival of the Chinese Communist Party will, in such matters, trump considerations of economic efficiency while India's private banks face no comparable constraint. He concludes:

So when all is said and done there is no possibility that Chinese state owned banks in general or CCB in particular will ever be profitable. Any full disclosure would most likely reveal that CCB is insolvent. The party is happy to take foreign investors’ money. It is doubtful that they will give it back.

In contrast ICICI is a well run, transparent private company that is subject to both Indian and US economic incentives and disincentives. It holds primary market share in one of the fastest growing economies in the world. The Indian regulatory and legal framework is being reformed, perhaps not as fast as markets would wish, but it is occurring. They also do not need a revolution to change a moribund system. From foreign investors’ stand point, there is very little risk and an enormous potential for profit.


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